17 March 2017 by Sophia Sykes
Changes to IR35: The Affects on Welsh Recruiters
As of April 2017, recruiters across Wales will have to alter the way in which they operate when recruiting contractors, with changes to the IR35 legislation being actioned.
IR35 affects all contractors who do not meet HMRC's definition of 'self employment'. Introduced in 1999, IR35, properly known as the Intermediaries Legislation, aims to combat tax avoidance by those supplying services to clients via an intermediary, such as a limited company.
In a plea to address this issue further, the HMRC have rolled out some changes that have encouraged a mixed response. Set to go live next month, off-payroll working rules in the public sector will be reformed, putting pressure on the Welsh recruitment industry as a result.
More duties for agencies
Agencies and End Clients will now be responsible for ensuring that companies run by just one person, namely Personal Service Companies (PSCs), pay the correct tax and NICs. With the intention to tackle non-compliance across the board, these changes will see those working through a PSC in the public sector pay the same tax as employees.
Carrying out further due diligence, agencies and end clients will have to actively assess whether IR35 applies to each PSC they work with. However, if the contractor is deemed to be inside of IR35 the agency has to deduct TAX and NIC’s at source from the contractors invoices and pass onto HMRC.
How will contractors be impacted?
Confirmed in the Spring Budget, many industry leaders believe these changes to have a negative impact on contractors in particular.
“Today’s announcements are deeply concerning for contractors” warns Dave Chaplin, the CEO of Contractor Calculator.
“The Chancellor has demonstrated that the Government doesn’t recognise the value of the UK’s self-employed. His insistence on reducing the gap in terms of tax paid between the employed and self-employed undermines the risks the UK’s contingent workforce undertake.”
Contractors working through a PSC inside IR35 will have to pay full income tax and NICs for each and every project they participate in. While still eligible to register for the Flat Rate VAT Scheme, the 5% allowance for administration expenses will be scrapped.
HMRC has now launched a public beta version of its new Employment Status Service (“ESS”) – the tool which can be used by contractors and clients to determine whether or not a contractor falls within the new off-payroll IR35 rules. Please find the link below:
Our governing body APSCo is not convinced that the design of the tool is appropriate, and many of the questions are ambiguous. However, HMRC has confirmed to them that “HMRC will stand by any results given by this version of the tool, and that engagers (you) and recruitment agencies (us) can rely on the results if the correct information has been entered”.
Clearly, the caveat here is whether or not the information entered is “correct”, and HMRC will decide that. However, as long as you have reasonable and accurate evidence to back up your answers they say we (or your clients or contractors) should be able to rely on the answer given.
Questions that Pubic Sector clients may wish to consider…
For more information on how contractors can work with recruitment agencies in light of these changes, contact Spencer Symmons at CPS Group.
06 March 2017 by Sophia Sykes
13 March 2017 by Sophia Sykes
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